December 1, 2006

Property Tax Collections Surged with Housing Boom

Gerald Prante

Gerald Prante

Download Special Report No. 146

Special Report No. 146

Executive Summary
No tax riles the American people more than property taxes, especially real estate taxes that are based on the value of their homes and land. According to a recent Tax Foundation poll, property taxes are thought to be the least “fair” of all state and local taxes.

Most likely, part of the reason for this loathing is that taxpayers are more acutely aware of what property taxes cost them than they are of income, payroll, corporate, or sales taxes. Sometimes, property taxes are paid into an escrow account without much personal attention from the taxpayer, but often property taxes involve the actual writing of a huge check to the local government.

Regardless of the reason for this intense anti-tax sentiment, the most heated debates in recent years throughout state capitals and local tax bills. Governors run on campaign platforms that appeal to voters’ desires to cut property taxes. School board elections and local referenda are dominated by the issue of property taxes. All manner of legislation has been justified by the claim that it will provide property tax relief: new taxes on income, new sales taxes, new slot machines or lotteries, new cigarette taxes, etc. The list goes on and on.

It is no wonder that politicians are talking so much about property taxes: recent tax collection data is a chronicle of rapidly rising property taxes.

Key Findings:
• Property taxes highest in the Northeast, Texas, Illinois, and Wisconsin
• New York and New Jersey dominate list of high-tax counties
• About half of all property taxes go to public schools
• Property taxes rose faster than incomes from 2002 to 2004
• Housing market decline may force local governments to cut spending or raise property tax rates

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About the Author

Gerald Prante

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A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.

A sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding.

A property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services.